The Anatomy of a Pump & Dump Group

Pump&dump (P&D) schemes are a common occurrence in the cryptocurrency world.

They most often happen in Telegram or Discord (chat programs) groups in which several thousand people buy a specific shitcoin (a crypto token without a value or future) at the same time in an attempt to artificially inflate its value. This value increase is called the pump while the selling of this now expensive token to naïve bystanders is the dump phase.

In this article, we’ll take a look at the anatomy of one such smaller P&D group.

Group

New groups are popping up daily, but they’re rarely legit. Most often they’re actually outer rims of already established groups – a secondary layer more intended for the dumping phase.

Members of the core layer agree on a coin and inform the outer rim about it. Even inside the core layer there are often several levels – for example, those who paid entry (averaging 1 – 10 BTC) generally get their information 5-6 seconds before others. That’s plenty of time to buy the coin at a lower price. Others join in afterwards and only 10-30 seconds later do the outer rims find out which coin was picked and go into hardcore shopping.

Quality core layers accepting new members today are hard to find and expensive to join (north of 15 BTC), and the groups people join today are generally second or third layer groups. The percentage of successful trades decreases as the circle you join is further away from the center.

Organizers are always successful because they’re the ones who decide which coin is next and can buy it well in advance – sometimes days to hide their trail. The very next layer already has a lower chance of success. Despite the fact that they paid for access to information, technical difficulties can happen and since the information can’t take too long to reach the outer rims otherwise everything falls apart, a simple glitch in the internet connectivity or the site in question can be enough to miss the train. The next layer is even less successful than the one before it – at this point, it can already be obvious which coin is being pumped judging by the graphs, and sometimes these outer rims use such information to buy before those in internal circles do, thereby beating them to a better price. The situation keeps resolving until it reaches the outermost layers.

Phase 1: Announcement

How often the pumps happen depends on the group. There are some who pump several times per day, and others who pump once per week or once per month even. The group we’ve been watching for this post is relatively new and does it once per day on average.

In phase 1, the time of the pump is announced, often with the help of a link which leads to a countdown to accommodate people from different time zones.

The exchange on which the pump will happen is also selected. Tokens susceptible to P&D are rarely listed on reputable exchanges, so these schemes will usually happen on HitBTC, Cryptopia, Coinexchange, and similar smaller exchanges.

It’s important to note that no one but the organizers knows which coin is going to be pumped.

Phase 2: Countdown and Preparations

Once the countdown begins, participants prepare their accounts by loading them up. The accounts are often loaded up only with enough funds to click “max” in the UI so the purchase goes through faster at market value.

Reacting quickly is very important so other browsers and programs are generally turned off and the internet connection is freed up as much as possible (no torrents or streaming) to make response times fast. Technical problems can create bagholders.

Those most experienced have trading bots ready (scripts for programmatic purchasing without the need for a browser). Once the coin is known, they type in its symbol and the bot takes over, immediately also setting up a limit sell order for 150% – 200% of the purchase price, all within a single second.

Phase 3: Pump

After the coin has been picked, the organizers buy enough of the coin to take advantage of the price spike, but not so much as to move the price themselves. If they moved the market with their own buys, this would get them accused of a pre-pump, causing them to lose followers. Such a move usually gets executed when the group is at its death throes and most participants have lost trust in the administrators. When only the most naïve remain – those who are unable to recognize pre-pumps – that’s when this last trick is executed to milk the members one last time.

After filling their bags, the admins release the coin’s information to the rest.

Some use bots, some go manual, but everyone then loads up on the same coin, making it more expensive.

Those who completed a purchase then move into hype phase where all chat channels are spammed with the coin, urging bystanders to buy it as well.

Phase 4: Dump

The purpose of this phase is to get innocent bystanders to buy into the coin because of its rapid rise (which is, by now, visible on the graph).

Because of a rapid sell-off by the members who bought early, the dump lowers the price of the coin to its initial value, sometimes lower. In rare cases, the pump will actually permanently raise a coin’s price by 10-15%, depending on the coin.

Professional Bagholders

When the organizers buy a coin before telling everyone, that’s what’s called a pre-pump. For example, in the group we were watching for this post, the OAX coin was announced with a pump start due at 23:00. But if we look at its graph, the pre-pump is obvious:

The graph clearly shows the organizers having loaded up on the coin 20 minutes earlier. This allowed them to start dumping on their group’s members immediately on start time at 23:00. The reason they were able to move the market by themselves was because this coin had a total trading volume of 2 Eth on HitBTC, which meant even half an ether could move the needle.

Many people simply don’t know that during a group’s pump phase the organizers are doing their own pump in the group itself in order to get the members to buy the coin from them.

If one of the members gets lucky and sells it forward for even more, that member is successful and has good things to say about the group, bringing in new members. Those who fail usually leave the group (so there is little to no negative feedback in such groups after a while), but only after begging and complaining about losses first:

These participants are called professional bagholders because they enter the market with amounts they cannot afford to lose and only want a quick buck – no research, no effort, no thinking, not even watching the first 4-5 pumps to see what the group is like.

The vast majority of P&D groups you get invited in by someone is of this type – a fraud designed with the express purpose of presenting the first pump as successful and legit and whetting people’s appetites, and then using future pumps to milk the members dry. It is very easy to make new groups – if you’re not the organizer, you’re expendable to the group.

Other P&D Types

Other than these P&D groups, there are other P&D methods out there. One of the more popular ones is celebrity endorsements/pumps. As celebs usually have many hundreds of thousands of followers, celebrities make good “professional bagholder factories”. For example, John McAfee (500k followers on Twitter) is very open to such schemes. Here’s how it works:

Organizers pick a coin and buy lots of it.

McAfee is contacted about it and paid 25 BTC (his current known fee).

McAfee also buys the coin, and then promotes it. The pump begins.

McAfee and the organizers dump the coin on the followers.

This is worth it only when the potential earnings are bigger than the expense – 25 BTC isn’t cheap after all. This is why this is usually done to long-term pumps (like Verge) or bigger coins (like SiaCoin or Stellar) which have enough of a market cap to not be completely obliterated by buy and sell orders from the organizers and McAfee alone. Schemes like these are very risky, but can be very profitable.

Conclusion

In the traditional investment world, P&D schemes are illegal. Because of a lack of regulation in the cryptocurrency space, they’re still a very appealing way of earning a lot of money quickly. There are various opinions about them – those who fail to use them properly and lose money usually label them as immoral or criminal, while those who are in the midst of them and find great success usually claim that they’re a great way of clearing the “dumb money” out of the market, or an awareness mechanism about the crypto bubble, or something else.

Objectively, those schemes are no more immoral than gambling or lottery ads on TV and online – everything involving money has its risks and without a great amount of research (technical investments), patience (HODL investment), or good contacts (P&D), there can be no profit.

Disclaimer: Bitfalls do not participate in P&D schemes other than in a watch-only capacity. We are primarily long-term technical investors. The participation in this group was for public research purposes only.

Bruno has a Master's Degree in English Language and Literature and Computer Science, and has been in web development and publishing for over a decade. He's been in the blockchain space since 2015. He's an avid board gamer and VR enthusiast - find him on Oculus and Steam as TheSwader. He frequently rants on Twitter.

I disagree wholeheartedly. TRX is a good coin with a long term plan. Where did you get this bogus information. TRX is one of the better coins out there compared to what Verge? That is nothing more than a copycat of Dogecoin which was a parody coin to start.

Your only source is a 2nd/3rd level group, and I kinda doubt that they told you in that group that there’s higher levels of groups.

Also the McCafee thing. Is that just a story built on that 25btc screenshot that could be Photoshop and wasn’t even presented as having anything to do with a PnD group (it was supposed to be the company behind the coin)?

PnD groups like the one you refer to are real and I don’t doubt there’s higher levels than what people in the group see, but but the rest seem kinda made up

We post objective analyses, by us or other authors, with their permission. We’ll represent both sides and are open to counter arguments. We see Charlie’s response on Reddit to that post as quite a weak attempt at justifying his actions.

Bruno, I don’t agree with you calling TRON a sh*tcoin. TRX has technology and developers are committing to it daily on Github. People are making these claims only based on few minor mistakes in PR. Don’t underestimate China on this one, I’ve literally got a few sources in gaming in mainland who confirmed that TRX is going to be big.

Hi great article for me as a newbie. Do you think TRON price will go up back to 30 cents so that at least we can get our money back. Also can you please suggest any reliable coins to invest in ? Thanks.

Thanks for doing such investigation. Super valuable info. 1) Would you attribute the success of Stellar to Pumps only? 2) as far as you know, does this manipulation have an impact on BTC or ETH or do they focus on smaller caps? 3) Do you have any estimate on how big is the problem – looking at the whole crypto industry?

The problem is huge. I have no idea how huge, but I do know there are hundreds of such groups. Every solitary spike in the graphs you see is a pump. Stellar has been around for a while, but it’s actually got a more complex history than the rest of them. While its recent success in price has been attributed to pumps, it does have long term potential if they do something with the tech. It’s not in the dump phase yet, and I’m not sure if it will ever be in a steep dumping decline. BTC and ETH aren’t pumped like this. They’re pumped differently. See here: https://medium.com/@bitfinexed/meet-spoofy-how-a-single-entity-dominates-the-price-of-bitcoin-39c711d28eb4

Can be anywhere from 1000 to 100000 or more. It varies from group to group, exchange to exchange, currency to currency. We’re currently in one that has 100k members, and we think it’s an outside layer.

Excavo does his best to get good TA across. He’s legit. The problem there is that crypto isn’t susceptible to traditional technical analysis because it’s a new and unregulated market with small volumes. So even the experts will get them very, very wrong (see his Verge forecast)

I second Filter Tipsy concerning the McAfee section. The article is very intersting but the Other P&D section is not based on facts or experiments but just on a screenshot … It really tarnishes the rest of the article, at least for people who have heard of the story. In my opinion, when something has more chances to be false than true, it probably should be left unmentioned, or at best, you should have mentioned that it’s based on a rumor or a screenshot of a supposed conversion between McAfee and some crypto company. Also “The 25BTC fee for McAfee might be made up, sure, but I don’t think anyone doubts the guy is taking bribes for pumps, only for how much.”, it’s not about doubts, it’s about facts, otherwise it’s just gossip and rumors, which means low-value content … I don’t know McAfee and I’m not especially defending him, I’m trying to be objective and give a piece of constructive criticism because I liked the majority of the article.

Thanks for the feedback. While I have been following McAfee and his recommendations as well as his skill level for a while now and therefore know that he is 100% unable to parse the technical content of whitepapers and ICOs he “reads”, I do agree that part is very speculative and only my personal perspective on things. It’s entirely possible that I’m wrong.

Great,great article! I just learned a lot from it. Do you think xrp an eth are also scams? I can clearly see it with tron and other shitocins but I think these two can well survive when the bubble burst and the gov regulates all cryptocurrency.

I can’t say anything good about IOTA. See here: http://archive.is/0PrTf – note that it’s an archived link because the author has been paid to take the post offline. I have no shareable opinion about ADA yet.

Excellent article. Thank you for sharing – gained some faith in humanity 🙂 I’ve heard rumours of this happening but Ive always dismissed it. I keep thinking nah people wouldn’t do that, its just not a nice thing to do. Lost a little more faith in humanity 🙁

Thanks Bruno this is by far the most important research I have read on Altcoins. I wish i knew this a month ago then i would not be left holding any Reddcoin, Siacoin, Tron or verge. I kept a small parcel…just in case. Unfortunately I loaded up on Stellar, which might be a mistake?

Hi Bruno, very interesting article. Do you have any idea how these organizers manage to get up to 100 000 people in their group in order to pump the coin? That just seems ridiculous to me , especially due to the fact that the group later gets disbanded when the people end up losing their money, meaning the organizers have to re-start a new group from scratch.

Some groups are SUPER long term and basically never disband because 20% of 100k winning is still 20k – that’s plenty to advertise and recruit new ones or get old ones to come back after a few fails. And it’s not like the same people fail every time so in better groups the departures aren’t that rampant. If you’re targeting only a 50% gain on a coin and invest the same amount in 3 different pumps, losing one isn’t a big deal – especially since the losses don’t go to 0. They go to starting level, or slightly below.

Eye opening article, good read altogether! What are your thoughts on Verge overall? They seem to be the opposite to most coins i.e crappy marketing (wraith pre 2018) and genuinely have solid tech. Their lack of care towards their rep leads me to think they are committed to it’s future and less so about making money from pumps? That muppet xvgwhale seemed to be more of a pump instigator rather than the actual team

It’s not looking good, to be honest. Whisper was/is a flop and a single dev doing everything doesn’t bode well. We’ll see. I use it for day trading gains, but wouldn’t bet on it long term – yet. Things might change, though.

All coins are “real”, the difference is in real vs fake demand. Right now, almost all demand is pumped – some by greed, some by P&D groups, but very little of it by actual utility. I can’t comment on DTN right now, but anything that deals with decentralized exchanges you can count on performing rather well in the future.

EthLend is fine. I don’t subscribe to lending platforms, I don’t see them as necessary in any way, but I do know some people involved in the project and can tell you that they’re not a scam at the very least.

Great article Bruno, glad I have discovered Bitfalls. I agree with your overall view 100percent. I am really curious to know your opinion on Gbyte. I see its value, but I believe is overvalued. What do you think? thanks, ciao

There are rumors that the Chinese (and Japanese, Koreans) will buy a lot of Dogecoin when the Chinese “Year of the Dog” starts on February 16th.

My theory, if you can call it that, is that it won’t happen. But because of the hype, the people who believe it will happen are the ones who will drive up the demand big before, not on, February 16th. And then those who are hodling will dump it on or a little after Feb. 16th.

I’m also guessing these P&D groups may be preparing something for this period of time as well in order to capitalize on the overall hype.

I’ve been in a coma for literally 8 years and only recently started paying attention to Crypto (well, last August). Thankfully, I haven’t been burnt by any dodgies.

Those who are in the P&D world are living a VERY dangerous life. You P&D the wrong person, well, you can imagine in this day and age….and its not that hard to find those people. Some take 1 minute, some take a while, but, you will be found. I am surprised that Belfort is still walking the earth…